Interesting connections: Exploring government debt, economic forces, and financial conditions in South Africa

Effective government revenue collection, spending and government debt management can contribute to economic growth. In November 2023, government debt in South Africa peaked at 72.72% of the gross domestic product (GDP). According to IMF guidelines, South Africa, as a developing country, has among the highest debt-to-GDP ratios globally. This study evaluated the impact of macroeconomic factors, such as inflation, economic growth and the financial conditions index on government debt between 1995 and 2023. The study employed an ARDL cointegration technique to estimate long- and short-term relationships between variables. The results demonstrated a cointegrated long-term relationship between the variables. Also, economic growth and financial conditions had a negative relationship with government debt, while inflation had a positive relationship with government debt. Thus government must ensure prudent fiscal policies, encourage economic growth, apply adequate debt restructuring, improve governance, and reduce corruption to improve South Africa’s debt situation.